Prejudgment Interest on Claims for Consequential Damages for Breach of Contract are not Recoverable as of Right Under Pennsylvania Law

Parties often specify in their construction contracts what amounts are recoverable for various events of breach. These provisions can impact not only the award of damages, but also whether amounts should be added to the award for recovery of prejudgment interest under Pennsylvania law.

In Cresci Construction Services, Inc. v. James H. Martin, the Pennsylvania Superior Court considered the circumstances under which recovery of prejudgment interest is mandatory as opposed to discretionary. In that case, the plaintiff contractor brought suit against the defendant homeowner, and the homeowner counterclaimed for breach of contract. The homeowner prevailed at a jury trial, but the Trial Court denied an award of prejudgment interest. On appeal, the Court affirmed and reiterated the limited circumstances under which recovery of prejudgment interest is a matter of right rather than discretion. Specifically, the Court held that, under Pennsylvania law, prejudgment interest may only be awarded as a matter of right in a breach of contract case where the amount of damages are ascertainable from the terms of the contract (for example, where the amount of damages is fixed in the contract or where there has been a failure to pay an amount owed under the terms of the contract). The Court stated that damages incurred as a consequence of failure to perform a contract could give rise to a claim for prejudgment interest, but the decision to award prejudgment interest in such cases is within the discretion of the trial court “as justice requires.”

The homeowner in Cresci sought recovery of damages for mortgage expenses incurred while awaiting completion of construction, legal expenses, inspection fees, and other associated costs. The Court found that while these claimed damages were incurred as a consequence of the builder’s breach, the amounts could not be determined by reference to the contract. In addition, because the homeowner had not ordered a copy of the trial transcript, there was no basis to ascertain whether the Trial Court abused its discretion in declining to award prejudgment interest. As such, the Court affirmed the denial of the award of prejudgment interest.

Parties to a construction contract can draft provisions that enable them to determine the amount of certain types of damages with sufficient certainty to allow for recovery of prejudgment interest as a matter of right. However, the amount of other types of damages cannot always be readily defined, and, unless the parties agree to a liquidated sum that contractually establishes the amount of such damages, it will be within the discretion of the Trial Court whether to award prejudgment interest. Ultimately, in cases involving claims seeking recovery of both damages in amounts that are ascertainable by the terms of the contract and those that are not, whether prejudgment interest may be recovered as a matter of right may depend on whether the jury (or the Court if it is the fact finder) makes specific findings on the amount and types of damages that are being awarded and on what claims.

Of course, if a party wants to ensure that it can obtain recovery of prejudgment interest it should include a provision in the construction contract specifying that it (or the prevailing party) can recover prejudgment interest on any damages awarded for breach of the contract. In such circumstances, Pennsylvania courts will enforce the terms of the contract and award prejudgment interest as contract interest.

William G. Frey is a Director in the Gibbons Business & Commercial Litigation Department and a member of the Construction Litigation Team.
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